Sunday, February 26, 2006
Biggles Brown avoids flying into tax flak
Posted by David Smith at 11:00 AM
Category: David Smith's other articles

Most weekday mornings, at 9.30, the Office for National Statistics (ONS) posts a new release on its website. And most of these releases, despite being lovingly crafted by the official statisticians, are forgotten by mid-morning coffee.

Some of them, however, have profound significance, and we had one such last week. The backdrop to it was that our hero, Gordon Brown, who a few days ago donned an RAF helmet in what may have been a subconscious tribute to Margaret Thatcher’s famous tank commander pose, was up against it.

It was only a matter of time, said critics, before the chancellor would have to bow to the inevitable and put up taxes, or at least throw in the towel on his apparently sacrosanct fiscal rules.

Brown, it should be said, has shown an ability to take evasive action on this issue in a way that would have done Biggles proud. Since the last big tax rise in 2002 — the increase in employer and employee National Insurance contributions — he has managed to avoid been picked up on the radar screens of most taxpayers.

Yes, the tax burden has risen, but it has done so by stealth, by the closing of tax loopholes and by some targeted increases, notably the additional tax on North Sea oil companies announced in December’s pre-budget report. Brown also dodged and weaved his way round his own fiscal rules, accepting with open arms revised ONS data that allowed him to extend the economic cycle back to 1997 and make his golden rule easier to achieve.

But there was still a significant doubt. Even two months ago, after the pre-budget report, the consensus was that further tax rises would be needed.

That was the significance of last week’s release. January is a key month for public finances, when the Treasury coffers are boosted by corporation-tax payments. More money flows into the exchequer in January than in any other month of the year. This year it did so in spades.

Inland Revenue receipts were up by 21%, or £6.7 billion, on a year earlier, boosted by a 51% rise in corporation-tax receipts. There’s a health warning attached to the figures — about a third of the corporation-tax boost was due to changes in North Sea tax. But that was always the plan. Vat revenues were less buoyant, up only 3.7%, reflecting the squeeze on high-street spending.

But the significance was that for the first time in years Brown is well-positioned to meet his forecasts for the public finances. The Ernst & Young Item club says this will be the first occasion since the budget of March 2000 that the chancellor has met his forecast, though in the interests of fairness it should be pointed out that he revised it up, by £5 billion, as recently as December.

One swallow does not make a summer, and one month’s figures should not be over-interpreted. But the writing has been on the wall for Brown’s black hole; the idea that there would need to be tax hikes of £10 billion or more to square the circle of fast-growing public spending and apparently binding fiscal rules.

The Institute for Fiscal Studies, in its “green” budget at the end of January, said there was a “reasonable case” for a £2.5 billion increase in tax. That is not so much a black hole as a bit of fraying at the edges. The game was nearly up.

The key to the outlook for the public finances is not just that Brown is benefiting from rising profits, a higher oil price, fiscal drag and his own measures designed to squeeze more out of the North Sea and closing tax loopholes. It was also the signal, in the pre-budget report, that public spending will slow sharply to 1.9%-a-year growth, from 2008 onwards.

Provided Brown sticks to those tough targets, implying spending growth below that of the economy as a whole, John Hawksworth of Price Waterhouse Coopers says he will get away without having to announce any meaningful additional tax rises.

That’s good for the economy, though fiscal drag (earnings rising faster than prices so people pay more tax) will still mean a rising tax burden. But it is also important politically. George Osborne, the shadow chancellor, hasn’t had a chance to have much of a go at Brown recently, and David Cameron, apart from nappy-changing duties, is having to deal with an assault from the Tory right over his lurch to the political centre.

Osborne and Cameron’s task would have been a lot easier if Brown had to come to the despatch box and announced that, contrary to the impressions given, he was going to hit everybody with another big tax hike. I have always argued that was highly unlikely; last week’s figures confirmed it.

As it is, the word from the Treasury is that Brown, apart from further efforts to show he is rounded enough to step into Tony Blair’s shoes at any time, is in “consolidation” mode. After the discomfort of autumn, when he was forced to halve his growth forecast, the March 22 budget will, it is said, be a firework-free zone.

The broad, macroeconomic numbers will be those set out in December.
Brown may even be holding out the hope that January’s figures are the precursor of even better things to come. His projections for public spending from 2008 will remain illustrative and will not be set in stone until March 2007. He would love it if a revenue surge means he does not have to be quite so tough in the next spending review, due to be completed in summer next year.

But consolidation it is at the Treasury, as it is at the Bank of England. For three monetary policy committee meetings now, Steve Nickell has been a lone voice voting for lower interest rates. The other eight MPC members disagreed.

His case is based on the Bank’s consumer-spending forecasts being too upbeat and inflation coming in below the 2% target as higher energy prices drop out of the calculation. He will probably be proved right. Whether it happens in the three meetings he has left before his MPC term expires is touch and go.

PS: No sooner is Dragons’ Den off the air than the BBC treats us to a new series of The Apprentice, with Sir Alan Sugar.

Not since the heyday of Crossroads, which lifted the lid on the Birmingham motel trade, have business viewers been so well served.

Or have they? Every week on Dragons’ Den a bunch of oddballs turns up to discuss new business ideas. I’m talking here, of course, about the “expert” panel.

On The Apprentice, Sugar barks “You’re Fired!” at everybody from the tea lady up and interrupts repeatedly, like somebody with a nasty case of Tourette’s.

It reminds me of the tale, possibly apocryphal, of the late Robert Maxwell. Encountering somebody lounging in the corridor outside his office, cigarette in hand, Maxwell summoned him in, asked him how much his annual salary was, wrote a cheque and told him never to set foot in the building again. But the victim of this summary dismissal, it turned out, was a visiting rep, not one of the Bouncing Czech’s employees. He left happy, cheque in hand.

In these politically correct days few bosses would dream of screaming “You’re Fired!” at anybody. The closest they might get to it is offering to improve somebody’s work-life balance, but even that would fall foul of half a dozen EU directives and have the employment lawyers rubbing their hands.

I love the BBC and I’m sure the corporation would say it is doing its bit to make business more accessible to viewers. But the conspiracy theorist in me wonders whether a bit of the Beeb’s traditional, anti-business agenda isn’t peeping out here; if business people are so awful, how much more attractive a career in social work.

From The Sunday Times, February 26 2006

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